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In-Company Value Engineering
Paul Ridilla

Use the new year to take a detailed look at your business.

There is always a better way! The construction industry adopted a new process to assure that we analyze every task and situation to determine that better way. NaWic’s construction dictionary defines value engineering as “a branch of engineering whose objective is to effect economy in the cost of constructing a project. Evaluating any object’s function and bettering the object in terms of dollars and functional objectives.”

I have always recommended utilizing your seasonal employees to value-engineer every project:

Before bidding to establish a feasible low bid and provide attractive alternates.

Before starting your project to assure cost-effective timing and efficiency.

Before starting each jobsite task to provide proper tools, equipment, materials and crew size.

Each of these steps involves very little cost but will provide enormous savings both in time and money.

Since we are beginning a brand new year, I highly recommend that you utilize the very same value-engineering strategy in your entire company. You can start with the word “value” and establish how much your company is actually worth in dollars, along with how much you would add to that value with each of your value-engineering concepts.

Value Added

Since recruiting and retaining productive craftsmen is a major concern with every contractor, your potential market value would more than double by saying “yes” to the 13 recommendations we covered in our September 2007 issue (available under the Archives section, free site registration required).

Item No. 11 is especially crucial to establish who is responsible for each individual on your payroll. Your ability to delegate can easily be measured by the number of hours you spend at your business.

A contractor who has been in business more than one year and has developed a management team should dedicate only about 40 hours per month to his business. You need to establish goals, prices, direction, age and salary guidelines, and company policies, and allow your management team to do what you are paying them to do.

Item No. 7 will assure you that each member of your team has a capable second-string back-up to handle those responsibilities in case of vacation, accident or illness, promotion to a higher position or turnover.

Naturally, a potential buyer would look very closely at your reputation in your market area.

Do you maintain critical job schedules and complete every project on time?

What percentage of your workload is negotiated vs. hard bit? How much is repeat business?

Do you pay your bills on time and enjoy good credit concessions with all of your suppliers?

Do you complete punch list and warranty items in a timely manner?

Do you produce quality workmanship on every project?

Do you honor your word? You cannot afford to break promises or go back on your word.

You need to monitor and control cash flow. Your service techs should collect at each service call and your monthly pay requests should be carefully related to actual jobsite progress. Any late payments should always be pursued immediately. You need to be constantly aware of any chance for embezzlement.

Do you cost-code your jobsite labor to assure your estimated numbers match your productivity? You need to know what tasks are profit-producers, as well as anywhere you are not competitive.

You should do a market survey to determine what else you should be doing, as well as for growth and/or survival. Most contractors who concentrate on residential work suffer from our recent housing slump and face the two Ds - distance and diversification.

1. You can bid a project in a geographic area where your type of work is booming and even set up a satellite division if the work is profitable.

2. You can diversify into any other type of work that would be competitive:

Remodeling: new bathrooms, kitchens, tile work, drywall, new additions, new doors and windows, etc.

Electrical service and construction.

Industrial and commercial maintenance and construction.

Any of the other trades.

You will be amazed at the number of your employees who have done other types of construction and also how many have valid licenses to perform other trades. You can combine forces with a small struggling trade contractor to establish a new company or division.

You should also analyze your physical plant, office, warehouse, stock yard, fab shop, maintenance garage, etc. Do these buildings meet your requirements for an efficient operation? You can rent or sell extra space and/or acquire additional needed space.

Could some of your office staff utilize our virtual office concepts (otherwise known as work at home)?

Do you have an organized warehouse with reasonable turnover of expensive parts and pieces?

Are you storing returns that could be used in your fab shop? This inventory can be utilized by your value-engineering team for new projects. These items are exceptionally critical in areas where you must pay tax on your inventory.

Is your jobsite paperwork accurate and thorough enough to collect your money, to resolve disagreements and prevent litigation? Do daily logs, R.F.I., extra work orders, etc.

Are you in compliance with our government regulatory agencies, such as OSHA, NLRB, ADA, EBOC, wage and hour, etc.?

Do you maintain ample bonding power and financial stability to pursue bigger projects?

It’s easy to see why a potential buyer for your company would use these questions to establish a reasonable value. Shouldn’t you answer each one confidentially and value-engineer any area that would convince you not to sell?

It is yours. Make it great!

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Questions? Need help? Call Paul at 407/699-8515, on his cell at 407/467-4916 or e-mail him (reference Plumbing & Mechanical magazine).